BAE Systems hit by Goldman Sachs sell note

BAE Systems has come under pressure after a sell note from analysts at Goldman Sachs.

A day after the defence giant agreed to pay fines of up to $79m (£48.7m) to the US government for breaking military export rules, Goldman said investors hoping for a share buyback could be disappointed. The bank said:

Some investors are hoping for a buyback, perhaps with the 2011 first half results. We believe that BAE cannot implement a buyback until it has made significant progress on pension discussions with the trustees/unions and a buyback announcement is unlikely until much later in the year.

We also believe that BAE's priority is still M&A where it described its pipeline as "active".

Following an investor presentation by the company in Washington on Tuesday, Goldman has cut its 2011 earnings per share estimates by 2% after BAE lowered guidance for its land division sales for the year to between $6bn and $6.5bn. In February these figures were $6.35bn to $6.9bn. Goldman said:

Aside from this, BAE's key message at this event was essentially unchanged. On the positive side, BAE is implementing "aggressive cost reduction", focusing on growth pockets in defence and security (e.g., cyber, support), pursuing exports, and it aims to deliver more than 5% earnings per share growth per annum (post the impact of any
buybacks). More negatively, BAE acknowledged the pressure on the US defence budget, greater pressure on pricing, and increased competition.